Rio Tinto chief executive Jean-Sebastien Jacques says he remains "the optimist in the room" despite commodity markets and mining stocks being roiled by escalating trade tensions between China and the US.

Rio's London and New York listed securities lost 3 per cent and 5 per cent of their value respectively on Wednesday, before the company's Australian shares surprised by largely holding their ground during Thursday's trading session.

Speaking in Sydney, Mr Jacques said he was confident the world would eventually return to free trade despite the recent mood for sanctions.

"I am still the optimist in the room because if you step back over the last 30 or 50 years, the biggest source of growth or creating wealth is through trade and I think everybody acknowledges it," he said.

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"We have to be very careful to make a difference between words and actions, it is not always the same thing.

"People are worried that trade is not always fair, it is not always very inclusive, so I invite everyone to sit around the table, put their issues on the table and fix it, and I still believe common sense will prevail because the best source of creating wealth for all parties is around trade."

More than 77 per cent of Rio's underlying earnings in 2017 came from its iron ore business, meaning the company would be particularly exposed to any sanction-induced slowdown in demand for steel in China.

The US has already imposed sanctions on Chinese steel, but with only 3 per cent of Chinese steel exported to the US, the impact has thus far been muted.

The latest round of sanctions will target some consumer products like refrigerators, and it remains to be seen whether they will add to pressure on the Chinese steel sector.

UBS analysts said the risk of a trade war was "clearly rising" and major stock markets could face declines of 20 per cent under a trade-war scenario.

UBS said the oil and energy sector would be the worst affected by a trade war, while the mining and metals sector was expected to come under selling pressure as generalist investors reassessed the latest tariff threats.

"Tariffs increase the cost of trade. This in turn lowers trade volumes, related industrial production and commodity demand, hence commodity prices. But detail matters. Direct impacts are negative but modest, as mined commodities are amongst a very broad range of targeted goods," said the UBS team in a note.

Production of diamonds at Argyle rose in 2017 after Rio moved to reprocess some of the wastes or "tailings" produced by the mine in previous years.

Exploration hopes

Argyle is scheduled for closure in early 2020 and Mr Jacques rejected the notion that Rio could continue producing pink diamonds at Argyle beyond 2021 by continuing to reprocess waste stockpiles.

"We still have two or three years of production from an economic standpoint and then that is it," he said.

"My sense is we have maybe two or three tenders ahead of us from what we know today and then that is it."

Argyle's imminent demise comes after Rio divested diamond assets in India and Zimbabwe in recent years, and its only other diamond-producing asset, the Diavik mine in Canada, is scheduled to close before 2030.

Despite the decline of Rio's diamond business, Mr Jacques said Rio was keen to continue in the sector and was hoping to find new mines through exploration.

Rio's best diamond exploration prospect is understood to be its option to earn a 60 per cent interest in a diamond exploration prospect in Canada called Fort a la Corne.

While the end of mining at Argyle is near, Mr Jacques said Rio would remain a significant employer in the region beyond the end of the mine's life given the need to spend more than a decade rehabilitating the mine.

"It could take maybe two decades before the site is rehabilitated ... there could still be lots of employment, especially for local communities for an extended period of time. Maybe they don't always have the right skill set at this point in time but we will work with them very closely in order to make sure that we create sustainable jobs for the coming decades," he said.